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Labour reforms in Hungary: background summary

The Hungarian government’s labour market policy, under the Conservative Fidesz government from 2010, has concentrated on the comprehensive reform of the Labour Code and the law on civil servants. The declared aim was to increase the historically low employment rate by radical flexibilisation of the labour market (‘to become the most flexible labour market in the EU’). The introduction of a flat personal income tax of 16% (2011) that is levied on the entire earning (abolishing the income tax exemption of the lowest wage brackets) was intended to cut labour costs. By a combination of measures labour market policy was concentrated on activation. The duration of the unemployment benefit was cut from nine months to three months. After three months, compensation is linked to the participation in a public works scheme organised by municipal authorities without considering skills levels or previous employment record of the unemployed person.

Three main labour market reforms

  • The new law (Act 199 of 2011) on civil servants came into effect on 1 March 2012; 20 years after the former act came into force. The new law fundamentally reformed the former employment regulation of civil servants. The Labour Code no longer applies to civil servants as a background law, since the new Act contains all employment regulations regarding civil servants.
  • The declared aim of the National Public Work Programme (2011) was to involve more participants in the labour market instead of paying them social benefits.
  • On 1 April 2012, the new Labour Code came into effect, replacing the former code after exactly 20 years. The 2012 Labour Code changed about half of the former provisions with a large scale flexibilisation of Hungarian labour law and resulted in a considerable downgrading of labour rights. The government’s objective was ‘to create one million new jobs by 2020’. The main pillars of this reform are described below.

National Public Work Programme since 2011

  • Hungary had three types of public works introduced in 1991, 1996 and 1997. All supported/support the employment of registered job seekers or social benefit recipients. The job should be of non-commercial public benefit.
  • Public work programmes were/are organised by municipalities, public employment services and other public organisations; in some cases also by NGOs. Most of the public works were/are in rural areas, and participants perform simple physical tasks.
  • Hungary has generated one of the biggest growths in public works compared to other Member States since 2011, both in terms of expenditures and the number of participants. The declared aim of the National Public Work Programme in 2011 was to involve more participants under the same funding.
  • In 2011 the funding for public works and social benefits was increased by 30%; in 2012 it was doubled. The diversity of forms remained the same, but they had new names and a more simple legal structure. The short-term public work structure was changed the most. The duration decreased from 90-200 days to 60-120 days, and it changed to part-time employment. The public works wage was also decreased.
  • Since September 2011, public workers have not been eligible for the minimum wage, so they get less money than before.
  • The disproportionately high level of those employed through the public works scheme distorts Hungary’s employment figures, a point that has been made on numerous occasions in the European Commission’s country reports for Hungary.

Hungary’s public works scheme is utterly ineffective in terms of transitioning the unemployed back into the active workforce (in 2014 only 13.8 percent of those participating in the scheme managed this).

The 2012 Labour Code

  • The arguments of the government for the comprehensive changes of the 1992 Labour Code were the following:
    • The social and economic background has dramatically changed since 1990. The large state companies had disappeared and the dominant role of the former socialist industry was taken over by the third sector with micro and small businesses. The provisions of the 1992 Labour Code, tailored for large companies, cannot be applied properly in the new economic situation.
    • The original text of the 1992 Labour Code was amended too many (about 50) times; the original meaning of many rules was therefore lost, leading to unpredictable court decisions. Consequently, simplification and clarification of the existing ‘patchwork’ regulation became a general aim, as well as developing new rules on the basis of court case law.
    • The crucial problem of the Hungarian labour market is the extremely low employment rate, and the main reason for this was seen by the government in the ‘high cost of employment’. In the opinion of employers’ organisations this cost should primarily be cut by the flexibilisation of employment law. Evidently, this demand was refused by trade unions and several academics.
    • Flexibilisation of labour law became the central pillar of the 2012 labour law reform. Flexibilisation was based on the legal policy argument of approximating labour law to civil (private) law. The simplification of legislation was handled as a secondary issue and the changing social, economic background as a factor was neglected.
    • The most important conceptual changes (in addition to the withdrawals of former employee rights) are as follows:
      • decentralisation of collective bargaining;
      • collective agreement concluded by a works council;
      • flexible regulation of working time and wage supplements;
      • downgraded protection against unfair dismissal;
      • limited liability of employers for damages;
      • flexible regulation and new forms of atypical employment;
      • reduced trade union rights.
      • The new Labour Code introduced radical changes in the relationship between the statute and collective agreements: to the detriment of employees, collective agreements may derogate from most of the rules for the employment relationship and from collective rights.
      • The new ‘soft representativeness’ criteria of trade unions might also foster collective bargaining: a trade union shall be entitled to conclude a collective agreement if its membership reaches 10% of all workers employed by the employer.
      • Collective bargaining will remain at workplace level, since the conclusion of sector level collective agreements is not facilitated by the new legal and economic framework, and the detailed rules are still missing from the Labour Code.
      • There are no official data on these developments, but the social partners have not reported any remarkable developments regarding the number and contents of collective agreements.
      • A collective agreement of limited effect (concluded at company level) may deviate from one with a broader scope (concluded at sector or sub-sector level), insofar as it can contain more favourable regulations for the employees, unless otherwise provided in the higher-level collective agreement. This new possibility can weaken the capability of higher-level collective agreements to standardise working conditions in an entire sector.
      • According to the new Labour Code, the primary role of works council agreements is still the arrangement of the relationship between the works council and the employer. However, works council agreements may contain provisions to govern rights and obligations arising in connection with employment relationships (normative part of the collective agreement, not covering wages, referred to as ‘quasi collective agreement’). Such works council agreements can be concluded on the condition that the employer is not covered by a collective agreement, and there is no trade union at the company with the entitlement to conclude a collective agreement.
      • Termination of employment has not really been changed, but only simplified. Nevertheless, the legal consequences of unlawful termination by the employer have been significantly restricted. Compensation for loss of income from employment may not exceed twelve months’ absentee pay (wage). Formerly, the employee was entitled to full payment between the dates of the termination of employment and the decision of the court, beyond an extra payment of 2-12 months’ salary or reinstatement of the job.
      • There is also a very limited option to restore the employment relationship in a short list of violations. The new system has already caused a remarkable decrease in the number of labour law disputes.
      • More radical changes were introduced regarding the employer’s liability for damages. Although the former general rule of objective liability was maintained - whereby the employer shall be liable to provide compensation for damages caused in connection with an employment relationship - the new exemption clauses, however, significantly restricted this liability.
      • The employer shall be relieved of liability if able to prove: a) that the damage occurred due to unforeseen circumstances beyond the employer’s control, and there had been no reasonable cause to take action for preventing or mitigating the damage; or b) that the damage was caused solely by the unavoidable conduct of the aggrieved party.
      • The reason behind this conceptual change is the intention to restrict the almost absolute liability of employers, which was clearly established by court case law based on the provisions of the 1992 Labour Code.
      • The 1992 Labour Code regulated five atypical employment relationships: part-time employment, open-ended employment relationship, telework, temporary agency work and the employment relationship of executive employees. Besides these, some other laws determined other forms of atypical employment (e.g. work from home, casual work etc.).
      • The new Labour Code expanded the list of atypical employment relationships to include on-call work, job sharing and joint employment.
      • Some rules on atypical forms of employment, especially regarding on-call work, job sharing and joint employment, are fairly brief and sketchy.
      • Although the new Labour Code does not consider one of the two types of employee representation to be more important than the other, there has been a noticeable shift of emphasis from trade unions in favour of works councils:
        • In the structure of the Code, the rules concerning works councils are presented before the rules of trade unions; in the previous Labour Code, the order was the other way round.
        • Monitoring compliance with labour law became the general task of works councils and not of trade unions as it was before, even though the necessary authority is not assured for works councils (e.g. the right to initiate proceedings with authorities).
        • EU law calls for consultation with the representatives of the employees in cases of restructuring the employer’s organisation (transfer, collective redundancy). The new Labour Code grants this authority specifically to works councils and not trade unions.
        • The new Labour Code diminishes the rights of trade unions in several respects:
          • The legal protection against termination of employment is not provided for every officer/member of the trade union (as in the 1992 LC), but only for (minimum) two to (maximum) six officers/members (depending on the number of employees at the workplace).
          • The employees designated by the trade union are entitled to a shorter working time reduction, i.e. one hour for every second member of the trade union.
          • Working time reduction cannot be redeemed by the employer if the trade unions are not using this extra working time. This was an important source of income for trade unions earlier.
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